The Income Tax Appellate Tribunal (ITAT), Delhi Bench, has recently, in an appeal filed before it, while allowing DTAA benefit, held that income from foreign assignment is not taxable, merely because the assessee owns a house in India.
The aforesaid observation was made by the Delhi ITAT, when an appeal was filed before it by the assessee as against the order dated 27.02.2019 of the Commissioner of Income Tax (Appeals), Faridabad (the First Appellate Authority or FAA), in appeal No. 10137/2018-19, arising out of an appeal before it, passed u/s 143(3) of the Income Tax Act, 1961, by the AO, ACIT, Circle-II, Faridabad.
The brief facts of the case were that the assessee was an individual employed with Ingersoll Rand Climate Solutions Pvt. Ltd, who was on long term assignment to PT Trane Indonesia (Ingersoll Indonesia), in Indonesia effective 9th November 2015 (during Assessment Year (AY) 2016-17) and was working wholly and exclusively for Ingersoll Indonesia, since 09 November 2015. Also, the Appellant was considered a Resident and Ordinarily Resident in India during AY 2016-17, as per the domestic tax laws of India, as he was present in India for more than 181 days and more than 729 days in the last 7 years.
It was so, that while on assignment to Indonesia, the Appellant continued to receive his salary through India payroll, by credit to his bank account in India for administrative convenience. And, as the payroll of the Appellant continued in India, Ingersoll Rand Climate Solutions Private Limited (Ingersoll India), had deducted and deposited the taxes section 192 of the Income Tax Act, 1961, and had also issued a Form 16 to the Appellant for the AY 2016-17.
Thereafter, the Appellant filed his return of income in India, offering a total income of INR 51,50,320, on 22 July 2016, thereby claiming that as he was rendering services for PT Trane Indonesia. He added that he was subject to tax in Indonesia, on his employment income for the year 2016 and accordingly, that he has duly filed his tax return in Indonesia for Calendar Year 2016.
It was claimed by the Appellant before the AO, that being qualified as a Resident of Indonesia for the Year 2016 (relevant for the period 1 January 2016 to 31 March 2016), as per domestic tax laws of Indonesia and as per Article 4(2) of the India- Indonesia Double Tax Avoidance (DTAA), given that for the above period, he had a permanent home available only in Indonesia and his family accompanied him to Indonesia.
He added that as he was tie breaking to Indonesia for the Year 2016 (relevant to the period 1 January 2016 to 31 March 2016) as per the Treaty, the salary for the overseas assignment duration for the period of January 2016 to 31 March 2016 ,was not to considered by the assessee as taxable in India, and hence that, in the India tax return filed by the Appellant for AY 2016-17 on 22 July 2016, he had availed the benefit of the Article 15(1) of the Treaty and claimed a refund of INR 24,92,190/ as well as received the refund on 14 November 2016.
Thereafter, the Appellant’s return of income was selected for scrutiny and the assessment was completed under Section 143(3), vide order dated 16 November 2018, issued by the Income Tax Officer. And, with the assessment being completed, the order was passed assessing the income at INR 1,18,32,680/-, thereby making an addition of INR 66,82,358 (salary income earned in Indonesia for the period January 2016 to March 2016), along with a demand of INR 28,79 430/, being raised.
Aggrieved by the said assessment order dated 16 November 2018, the Appellant proceeded with an appeal before the Commissioner of Income Tax, Appeals. However, the Appellant’s appeal was disallowed by the Commissioner of Income Tax (Appeals). And, it is being agitated by the same, that the assessee has preferred the instant appeal before the Delhi ITAT.
The grounds of the assessee’s appeal being that, on the facts and in the circumstances of the case and in law, the CIT(A) has erred in concluding that the AO was justified in bringing into tax, the global income of the Appellant for the period January 01, to March 31, 2016 in India, with no credit for the taxes paid in Indonesia on the doubly taxed income as per Article 23 of the Treaty, hearing the opposing contentions as submitted by Ms. Priti Goel, the AR and by Shri Sanjay Kumar, the Sr. DR, as well as perusing the materials available on record, the Delhi ITAT noted:
“At the outset the bench is of considered opinion that Ld. CIT(A) seems to have decided the matter with restricted approach to determine tax residency only on the basis of fact that assessee owned a residential property in India and if it is possessed by assessee or vacant or rented is immaterial. It seems the ld CIT(A) has fallen an error in not taking into consideration the evidence produced by the assessee in the form of copy of passport of all the family members of the appellant relocated to Indonesia with appellant, copy of tax residency certificate issued by Indonesia in Calendar Year 2016, bank account of Indonesia, international medical insurance plan, job assignment letter, school fee receipts for children of the appellant studying in Indonesia and lease agreement of the property occupied by the appellant in Indonesia during the Financial year 2015-16 to 2017-18. Same should have been commutatively taken into consideration to determine the question of permanent home available to the assessee.”
“On the part of the revenue there is nothing before the bench to show that if ‘permanent home available’ has been defined in a manner that if an individual holds of a residential property in India it has to be considered to be ‘permanent home available’ for the purpose of Article 4 of the relevant DTAA. If that be the case then the benefit of the Article 4 for the purpose of ‘permanent home available’ can be given to assessee only if he does not own a residential house in India or if he has his own residential house in the contracting state. Such seems to be not the intention of law.”, the ITAT added.
“It can be observed that Article 4(2)(a) refers to the fact that while attributing the tax residency of resident to one of the contracting States, it is to be seen if he has a permanent home available to him, then he shall be deemed to be resident of that contracting State only where he has a permanent home available to him and the other factors become irrelevant. The ld CIT(A) has proceeded on this premises alone that as assessee owns a residential home in India, he is to be considered tax resident of India. But admittedly assessee is not a person having permanent home available to him in Indonesia as he has occupied a leased premises provided by local employer there. House located in India is under lease and rent received is submitted as rental income. Therefore, as per Article 4(2)(a) the assessee has to be assumed to be a person who does not have a permanent home available to him”, the ITAT panel comprising of N.K Billaiya, the Accountant Member, along with Anubhav Sharma, the Judicial Member, noted.
Thus, allowing the assessee’s appeal, the Delhi ITAT held:
“So, the Bench is of firm opinion that the concept of ‘permanent home available’ has been wrongly interpreted by the Ld. Tax Authorities. Ld CIT(A) has further fallen in error to not consider the applicability of other parameters of Article 4 (2)(b), which Ld. AO had infect taken note of and determined against the assessee. The findings of the Tax Authorities below in regard to taxing the income of assessee earned from foreign assignment are liable to be reversed. The grounds are sustained and the appeal is allowed.”
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